Question

Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 2/10, n/60 and an invoice price of $23,600. The merchandise had cost Mesa $16,095. Assume that both buyer and seller use a periodic inventory system and the gross method. 1. Prepare entries that the buyer should record for (a) the purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period. 2. Prepare entries that the seller should record for (a) the sale, (b) cash collection within the discount period, and (c) cash collection after the discount period.

Answer 1

1. Books of Buyer (Santa Fe)

Transaction	General Journal	Debit	Credit
(a)	Purchases	23600
	Accounts payable		23600
	(To record the purchase on account)
(b)	Accounts payable	23600
	Purchase discount (2% x $23600)		472
	Cash ($23600 - $472)		23128
	(To record the payment within discount period)
(c)	Accounts payable	23600
	Cash		23600
	(To record the payment after discount period)

2. Books of Seller (Mesa Wholesalers)

Transaction	General Journal	Debit	Credit
(a)	Accounts receivable	23600
	Sales revenue		23600
	(To record the sales on account)
(b)	Cash ($23600 - $472)	23128
	Sales discount (2% x $23600)	472
	Accounts receivable		23600
	(To record the collection within discount period)
(c)	Cash	23600
	Accounts receivable		23600
	(To record the collection after discount period)

Note: Under the periodic inventory system, no journal entry will be recorded for the cost of goods sold of $16095 at the time of sale. At the period end, the total purchases will be added to the beginning inventory to arrive at the cost of goods available for sale from which the ending inventory will be deducted in order to arrive at the cost of goods sold.